Philippines: Why Pacquiao deserves kudos

21 October 2017:

Belated kudos to Sen. Manny Pacquiao, the first senator to figuratively give the finger to the cigarette/tobacco lobby. A week or so ago, he introduced Senate Bill No. 1599, or “An Act Raising the Excise Tax on Tobacco Products and Amending for the Purpose Pertinent Sections of the National Internal Revenue Code, as Amended.”

The Explanatory Note to his bill should be enough to put the Department of Finance and his colleagues in the legislature to shame. While they claim they still have to do homework on the data, Pacquiao cites chapter and verse showing that the original Sin Tax Reform Act (passed in 2012) was responsible for the large drop in the smoking prevalence rate, showing that the quit rates among the poor, the rural folk, and the elderly have the most increases, and that reducing the affordability of cigarettes has the biggest effect on deterring would-be smokers from starting the habit—the equivalent, he says, to at least 70,000 deaths avoided from 2013 to 2015.

Pacquiao says the Sin Tax Law resulted in “the largest increase recorded in the history of the national budget for health—more than doubling from 2012 when the Sin Tax Law was passed, to 2016 (P57 billion to P123 billion).” And it financed an additional 10.1 million poor families and 2.8 million elderly under the National Health Insurance Programs.

The logical question then is, if it is working so well, why change it? Pacquiao provides the answer: The market has stabilized and he has the evidence to show it—the volume of cigarette removals decreased from 5.7 billion to 3.6 billion packs between 2012 and 2014, but it increased in 2015 to 4.2 billion packs, suggesting that a new upward adjustment in taxes for tobacco is needed. In addition, he says, the smoking prevalence rate is still high (and the cigarette prices are still low—SCM) compared to other countries in the region.

So what does he suggest? A unitary tax (the cigarette lobby wants a two-tiered tax, one each for higher priced and lower priced cigarettes) of P60 in 2018—the timeline suggests that it be included in this year’s TRAIN—with a 9-percent annual increase in the excise tax thereafter.

Pacquiao also points out that this not only will raise revenues (a tobacco tax is price inelastic, meaning that a higher tax will lead to a revenue increase), but will also reduce smoking prevalence to 19.8 percent by 2020.

Surely the other senators should be convinced by this evidence-based explanation. But to date, only three other senators, according to my information—Bam Aquino, JV Ejercito and Risa Hontiveros—have expressed support for the bill, or intentions to put up their own bill. Anyway, bravo again, Senator Pacquiao.

For heaven’s sake, Senators, start acting in a statesmanlike manner, rather than putting private needs first.

Reader, do you know that the Senate version of the TRAIN has really mangled, practically beyond all recognition, the original DOF (and Joey Salceda’s) proposal? The original DOF TRAIN would have raised P157.2 million in revenue. The House of Representatives got its hands on it, changed it (according to lobby desires, methinks) and it went down to P133.8 billion, and then finally to P119.4 billion (if I read the news reports right). It then went to the Senate and, according to the World Bank Economic Update, the revenues to be expected from TRAIN after the Senate got through with it is now down to P59.9 billion. If this is true, the expected revenue has come down from 0.9 percent of GDP to 0.3 percent of GDP, not nearly enough for Philippine development targets.

How did it do this? Well, says the Update, it reduced the threshold for personal income tax exemption, reduced the removal of value added tax exemptions to 36 lines from 70 (and even added more exemptions for the economic zones—SCM), and “restructured” (read: “reduced”) the excise taxes on fuel, automobiles, and sugar-sweetened beverages.

I understand Senate President Koko Pimentel cut short the floor discussions, saying, “This is a presidential campaign promise, and the President really wants this.” And everybody fell in line, withdrawing objections. Jeez. Railroading the TRAIN.